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Once again the NHS is evidence of Baumol’s central contention

Summary:
Or as we should put it, the NHS is evidence of both of Baumol's central contentions. The first is that one that many know, the Cost Disease. As technology marches on it is easier to increase productivity in manufacturing rather than services. But wage rates are set by average productivity across the economy thus services will rise in price as against manufactures over time. The NHS is largely a service and this then explains the NHS having an inflation rate above that of the general economy.We're perfectly happy with that basic analysis by the way, we just don't think that it explains all of the NHS' higher inflation rate. However, here's the other of Baumol's major contentions coming into view:Maternity wards have done ‘very little’ to prevent serious medical errors in the past 20 years,

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Or as we should put it, the NHS is evidence of both of Baumol's central contentions. The first is that one that many know, the Cost Disease. As technology marches on it is easier to increase productivity in manufacturing rather than services. But wage rates are set by average productivity across the economy thus services will rise in price as against manufactures over time. The NHS is largely a service and this then explains the NHS having an inflation rate above that of the general economy.

We're perfectly happy with that basic analysis by the way, we just don't think that it explains all of the NHS' higher inflation rate. However, here's the other of Baumol's major contentions coming into view:

Maternity wards have done ‘very little’ to prevent serious medical errors in the past 20 years, a damning report warns.

Babies are today just as likely to suffer brain damage as a result of blunders made by midwives and doctors as they were during the late 90s.

Midwives are failing to properly monitor heartbeats and junior doctors are attempting to perform complex deliveries with no previous experience.

The report by NHS Resolution – the health service’s legal body – examined 50 cases where the health service admitted liability for babies being born with cerebral palsy, a form of brain damage, between 2012 and 2016.

That other major contention being about invention and innovation, those things which lead to those increases in productivity in the first place. The two, the Cost Disease and the creation of innovation making up a unified whole. 

His observation being that governments and planned systems can do invention just as well a market and competitive systems. However, they are considerably worse at innovation, the gradual and continual refinement of processes so as to increase that productivity. Actually to the point that entirely planned systems, like say the Soviet Union, manage to make no, none, advance in such innovative productivity even while they can indeed invent satellites and so on.

Productivity here is clearly the amount of labour being used in maternity wards as against the number of children damaged by errors on those same wards. Fewer damaged would be an increase in productivity.

The point is not that the errors happen - no human based system is ever going to be free of those. Rather, that there has been no improvement in this planned system over the decades. Exactly Baumol's point, planned systems don't manage to do this.

Rather why we should indeed be having a market - even if government funded - in health care, yea even in the NHS. It's for the children, you see?

Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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